Fiscal drag pushes up number of top-rate taxpayers

A COMBINATION of ‘fiscal drag’ and reduction in the criteria for paying 40% tax is thought to be behind a rise in higher-rate payers.

Data published by HM Revenue & Customs (HMRC) shows that the total number of top-rate taxpayers has hit 4.1m – up from 3.8m – with more than 300,000 of that number paying the 50% additional rate.

The total number of taxpayers, though, is set to drop this year from 30.1m to 29.7m as the lowest-paid are removed from the tax system as a result of an increase to their personal allowance.

Paul Belsman, national head of tax at RSM Tenon said that the figures showed the government’s intention to redistribute the tax burden.

“People are being brought into the higher tax bands that much sooner in order to compensate for the cost of taking those earning less than £10,000 out of tax”, he said. “It squeezes the middle, who are already being tightly squeezed with various other claw-backs, not least child benefit.

“The impact on the net income of people who are earning £36,000-£38,000 is significant, and they will probably feel they are paying for the sins of others.”

In a statement, the Treasury said it had increased the personal allowance in “three successive Budgets… which benefits both basic-rate taxpayers and most higher-rate taxpayers this year and next year.”

The statement went on: “The higher rate tax threshold remains the same this year as it was last year and the increase to the personal allowance in 2012-13 has not created new higher rate taxpayers, although there will be some people whose income increases over the two years, meaning that they move into the higher rate.”